Two-time champion Serena saved a match point and overcame Elena Dementieva 6-7 (4), 7-5, 8-6 in 2 hours, 49 minutes. Five-time winner Venus needed only 51 minutes to overwhelm Dinara Safina 6-1, 6-0 and reach her eighth Wimbledon final.
"Oh my God, this is my eighth final, and it's a dream come to true to be here again and have the opportunity to hold the plate up," Venus said.
The sisters - with 17 Grand Slam titles between them - will face each other Saturday in a Fourth of July final.
"A fourth final - it's so exciting. It was so hard before my match to watch all that drama," Venus said, referring to Serena's semifinal. "It was so difficult. But the hardest part is next to come, to play Serena Williams."
One Williams or the other has won seven of the past nine championships at the All England Club. Serena beat Venus in the 2002 and '03 finals here, while Venus came out on top against her younger sister last year.
Venus is bidding to become the first woman since Steffi Graf in 1991-93 to win Wimbledon three years in a row.
There have been seven previous all-Williams championship matches at majors, with Serena holding a 5-2 lead. Overall, the sisters are tied 10-10.